Macro Allocation Fund Investment Review

December 2019

Brian D. Singer, CFA, Partner Thomas Clarke, Partner Portfolio Managers

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Macro Allocation Disclosure December 2019

Performance cited represents past performance. Past performance does not guarantee future results and current performance may be lower or higher than the data quoted. Returns shown assume reinvestment of dividends and capital gains. Investment returns and principal will fluctuate with market and economic conditions and you may have a gain or loss when you sell shares. Class N shares are available to the general public. Class I and Class R6 shares are available only to investors who meet certain eligibility requirements. For the most current month-end performance information, please call +1 800 742 7272, or visit our Web site at www.williamblairfunds.com. The information about the William Blair Fund’s holdings contained in this presentation are as of the date specified on the holdings page and are subject to change thereafter. Information about the Fund’s holdings should not be considered investment advice. There is no guarantee that the Fund will continue to hold any one particular security or stay invested in any one particular sector. Holdings are subject to change at any time. This content is for informational and educational purposes only and not intended as investment advice or a recommendation to buy or sell any security. Investment advice and recommendations can be provided only after careful consideration of an investor’s objectives, guidelines, and restrictions.Risk The Fund involves a high level of risk and may not be appropriate for everyone. You could lose money by investing in the Fund. There can be no assurance that the Fund’s investment objective will be achieved. The Fund holds equity exposures, which may decline in value due to both real and perceived general market, economic, and industry conditions. Investing in bond markets is subject to certain risks including market, interest-rate, issuer, credit, and inflation risk; investments may be worth more or less than the original cost when redeemed. Derivatives may involve certain costs and risks such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested. Investment return, principal value, and yields of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Investments are subject to a number of types of risk, including counterparty and contractual default risk. For a more detailed explanation and discussion of these and other risks, please read the Fund’s Prospectus. The Fund is designed for long-term investors.Benchmark The ICE BofAML 3-Month U.S. Treasury Bill Index is comprised of a single issue purchased at the beginning of the month and held for a full month. Theissue selected at each month-end rebalancing is the outstanding U.S. Treasury bill that matures closest to, buy not beyond, three months from the rebalancing date. The Index is unmanaged and does not incur fees or expenses. It is not possible to directly invest in an unmanaged index.Please carefully consider the Fund’s investment objectives, risks, charges, and expenses before investing. This and other information is contained in the Fund’s prospectus and summary prospectus, which you may obtain by calling +1 800 742 7272. Read the prospectus and summary prospectus carefully before investing. Investing includes the risk of loss. Copyright © 2020 William Blair & Company L.L.C. William Blair is a registered trademark of William Blair & Company, L.L.C.Funds distributed by William Blair & Company, L.L.C., member FINRA/SIPC.

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Summary & Outlook December 2019

• Following another year of equity market buoyancy, we

only see marginal medium-term upside opportunities across equities in general, and we are not inclined to chase prices higher via materially long exposures

• As part of our navigation of the central bank-influenced environment, we’ve recently made modest increases to our overall equity exposure in portfolios and finished the year with a larger total equity position than we began

• Our overall beta and risk postures are still slightly below expected long-term central tendencies

• Two major geopolitical risks—the trade dispute between the U.S. and China and a “no-deal” Brexit—have subsided but not yet altogether disappeared

Performance Summary The Macro Allocation Fund completed the quarter with positive performance, with both aggregate market and currency exposures contributing. Within markets, the portfolio benefitted from long exposures to U.S., emerging, Europe, and UK equity. Negative contributors to performance within markets were long exposures to U.S. Treasuries and short exposure to Switzerland equities. Within currencies, long exposures to the Mexican peso, Swedish krona, and Colombian peso added value, while short exposures to the New Zealand dollar, Australian dollar, and Thai baht detracted. Strategy Positioning Market strategy remains long of equities, with an effective exposure of +31%, with net exposure increasing during the quarter. The strategy’s largest risk exposures remain in developed Europe and emerging equities. Market strategy is net long of fixed income with

exposure of +13%, with long exposure primarily in U.S. government bonds. Within currencies, strategy remains long of emerging currencies such as the Philippine peso, Indian rupee, and Mexican peso, with the largest short positions in the Thai baht, euro, and New Zealand dollar. Strategy Review and Outlook The fourth quarter of 2019 was generally calm for global asset markets; developed and emerging equities recorded gains with low realized volatility, while bond yields rose (and prices declined) but only modestly in most cases when compared with their pronounced fall in the first three quarters of the year. Currency performance was broadly consistent with positive appetite for risk; most emerging and “positive carry” currencies appreciated, and barometers of “safe-haven” tendency—the Japanese yen and the Swiss franc—traded slightly weaker. This experience was sharply different from the fourth quarter of 2018, when global equities fell by more than 10% against a backdrop of rising bond yields. Because of the respective Q4 experiences, the calendar years 2019 and 2018 stand in significant contrast as well. Almost all equity markets were negative in 2018, and with very few exceptions they were strongly positive in 2019, some reaching new all-time highs. Government bond performance was also significantly stronger in 2019 when compared with 2018. The change in fortunes for asset markets has been greatly assisted by another large collective effort by central banks to encourage risk-taking, led by the Federal Reserve (Fed) in the United States but also by the European Central Bank (ECB). Most notably, 12 months ago the Fed switched from what had been a three-year period of moderate but persistent monetary policy tightening, back to easing, and the timing of this U-turn indicates it was very likely influenced by the pessimism affecting world stock markets at the end of 2018.

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Summary & Outlook December 2019 The Fed reduced its policy interest rate three times in 2019 starting in July, though it communicated its shift to easing expectations seven months prior. The ECB also cut its key deposit rate in September; this rate had already been below zero since 2014 and became more negative at -0.5%. The ECB also restarted quantitative easing-oriented asset purchases. Many emerging countries also reduced interest rates, which was in most cases justified by or consistent with declining inflation rates. The only countries to increase policy interest rates were Sweden (from the most negative rate in the world to a still negative rate), Norway, and the Czech Republic. Against this broad backdrop equities have responded with price strength in line with previous central bank efforts during the last several years. Market participants have also learned that sovereign bond yields being very low does not stop them from moving lower under aggressive central bank stimulus, and that negative yields do not prevent more negative ones: the list of countries with 10-year bonds yielding less than zero includes Japan, Sweden, Switzerland, Denmark, and much of the euro-zone except for Portugal, Italy, Ireland, Greece, and Spain. Even in these latter markets, yields are extremely low, which is an extraordinary comparison with the crisis levels that the "PIIGS” bonds reached in 2011. The buoyancy of world equity markets has caused the fundamental attractiveness of many of them to diminish or, in some cases, disappear altogether (and some equities are fundamentally overvalued). Because of this valuation situation, we do not see significant medium-term upside opportunity in most markets, and we are not inclined to chase prices higher via materially long exposures. Nonetheless, as part of our navigation of the central bank environment, we made modest increases to our overall equity exposure in portfolios in the quarter and finished the period with a larger total equity position, albeit not at all aggressive and in fact still slightly below our expected long-term central tendency. In addition, as we have previously noted, despite central banks’ accommodation they are not able to fully or perfectly immunize

markets against sudden bouts of weakness. While said bouts of weakness were not in evidence in the fourth quarter of this year, we have recently witnessed a number of them (including 2018 Q4 previously mentioned). Successful “buy the dips” investing requires that not too much exposure has been bought prior to the dip and part of our investment strategy involves preserving capital in order to be in a position to step into larger exposures when (as is likely) they are more compellingly compensated. Although we believe that sovereign bonds are highly overvalued based on our long-term assumptions for inflation, real cash rates, and risk premia, this belief does not necessarily drive a belief that near-term outsized returns will emanate from this market segment. This is largely because the segment in which central bank policy has been most influential in driving and keeping price far from fundamental value is in developed-market government bonds. This effect has become known as “lower for longer,” and it amounts to a substantial impediment to the otherwise “higher” pull of value on long-term interest rates. Because of this powerful offset to what would otherwise be a large bear opportunity, we have modest positive bond exposures rather than short exposures to which a pure fundamental opinion points. Our largest single equity market exposure in portfolios at year-end was long United Kingdom, while at the start of the fourth quarter we had flat (zero) exposure in this market. The same describes our position in the British pound (GBP); we had no exposure at the end of September but had established a medium-sized long exposure subsequently. U.K. equities have been one of the more fundamentally attractive markets in our universe for a considerable time, and the GBP has been undervalued ever since it dropped in mid-2016 following the United Kingdom’s Brexit vote. As detailed in our previous investment letter, we nonetheless neutralized both exposures to the United Kingdom in the third quarter (not for the first time) owing to the offsetting headwind of the risk of “no-deal” Brexit, a risk that we believed had increased when Boris Johnson 4 9418330

Summary & Outlook December 2019

became Prime Minister in July. Our analysis concluded that this danger subsequently decreased after Mr. Johnson backed a renegotiated draft Brexit deal with the European Union in October—although the substance of this draft was not very different from the one backed by his predecessor. An important implication for markets was the accompanying change in “endowment effect” or, in other words, a new vested interest in a deal (rather than no deal) on Mr. Johnson’s part, and essentially his staking of his political fortunes on its ultimate passage to fruition. In addition, despite suffering numerous parliamentary defeats early in the quarter, Mr. Johnson called a general election in December in which his party was reelected with its largest majority in three decades. The size of the election victory substantially reduces the ability of opposition parties, and of factions in the conservative party, to derail the government’s Brexit intentions (which these groups were able to do prior to the election). “No-deal” Brexit is not removed as a risk, but going into early 2020 we believe it is of low intensity and is not a large impediment to the valuation opportunities in both U.K. equities and GBP. Another prior source of geopolitical risk in markets—the trade dispute between the United States and China—has also reduced in intensity when compared with the middle of this past year. Protectionist threats from the U.S. government have been dialed back, and a partial resolution of trade issues has been communicated as more likely than before. Part of the reason for this is the electoral timetable in the United States, and in particular, President Donald Trump’s interest in winning a second term in November 2020. Mr. Trump has in the past demonstrated ability to upset the U.S. (and other) equity market(s) with protectionist aggression toward China, and we anticipate that he will be less willing to risk such equity market upsets in an election year. China does not have this limitation, of course, and may not accommodate the Trump administration’s reconciliation substantially, but overall the adverse risk of increasing protectionist actions in this trade war has abated.

Our long-term investment objective is to deliver positive investment returns greater than inflation through a market cycle. We remain grounded in fundamental valuation as our first step—we strive to only take compensated risks and are unwilling to extend exposures unduly in a reach for yield that would be dictated not by opportunities and risks, but by very low real interest rates. There will be environments in which we conclude that macro markets do not provide returns and risks compatible with portfolio objectives alongside other periods where compensation is abnormally high. During the last decade, the challenge of navigating these evolving environments has remained a significant component in the investment landscape, but we find our investment process, dialogue, and decision-making well-equipped to meet this challenge in an appropriate way. We remain vigilant as we assess new and relevant information to capture future investment opportunities in a timely manner and will continue balancing the relationship between risk taken and compensation expected.

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Performance December 2019

Expense Ratios: Gross Net

Class R6 Shares 1.05% 1.05% Class I Shares 1.13% 1.13% Class N Shares 1.44% 1.41%

Expenses shown are as of the most recent prospectus and include acquired fund fees and expenses. The net expense ratio reflects that the Fund's Adviser has contractually agreed to waive fees and/or reimburse expenses to limit fund expenses until 4/30/2020.

Performance cited represents past performance. Past performance does not guarantee future results and current performance may be lower or higher than the data quoted. Returns shown are since inception total returns, which assume reinvestment of dividends and capital gains. Investment returns and principal will fluctuate with market and economic conditions and you may have a gain or loss when you sell shares. For the most current month-end performance information, please call 1-800-742-7272, or visit our Web site at www.williamblairfunds.com. Class N shares are available to the general public without a sales load. Class R6 and Class I shares are available to certain institutional investors. The BofA Merrill Lynch 3-Month U.S. Treasury Bill Index measures total return on cash, including price and interest income, based on short-term government Treasury Bills of about 90-day maturity. The index is unmanaged, does not incur fees or expenses, and cannot be invested in directly. The U.S. CPI + 5% is not a benchmark but is included as supplemental reference as the long-term return objective. The HFRI Macro Discretionary Thematic Index includes hedge fund strategies primarily reliant on the evaluation of market data, relationships and influences, as interpreted by an individual or group of individuals who make decisions on portfolio positions; strategies employ an investment process most heavily influenced by top down analysis of macroeconomic variables. Constituents are equally weighted and returns are reported net of underlying manager fees. The index is unmanaged and cannot be invested in directly.

Investment Performance for Periods ended 12/31/2019 3 Months 1 Year 3 Year 5 Year Since Incept.* Since Incept.** Macro Allocation Fund (WMCJX) Institutional Class R6 1.87% 4.29% 2.91% 0.99% 1.58% -- Macro Allocation Fund (WMCIX) Class I 1.81% 4.14% 2.81% 0.88% -- 4.53% Macro Allocation Fund (WMCNX) Class N 1.82% 3.97% 2.54% 0.62% -- 4.27% BofA Merrill Lynch 3-Month U.S. Treasury Bill Index 0.46% 2.28% 1.67% 1.07% 0.87% 0.69% HFRI Macro Discretionary Thematic Index 1.87% 5.64% 1.63% 1.10% 0.72% 0.94% U.S. CPI + 5% 6.65% 6.61% * Inception: 10/21/2013 **Inception: 11/29/2011

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Performance Analysis December 2019 The below table shows the calculated regional performance attribution of the Macro Allocation Fund by asset segment for the quarter.

Past performance does not guarantee future results. Portfolio exposures and attribution are based on the Macro Allocation Fund (Class N). Performance attribution is sourced from Cloud Attribution Ltd. Using the Karnosky-Singer performance attribution methodology.

Macro Allocation 4Q 19Total (%) 1.8

Equity 1.5North America 0.3Europe 0.7Asia 0.1Emerging 0.4Other 0.0Fixed Income 0.3North America Rates -0.3Europe Rates 0.0Asia Rates 0.0Emerging 0.0Credit 0.1Low Duration 0.4Currency 0.2North America 0.0Europe 0.4Asia -0.7Emerging 0.5Residual -0.2

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Forward-Looking Risk December 2019

The below chart shows the expected sources of investment risk* for the Macro Allocation Fund.

Source: William Blair *The DAS team’s expectation of the portfolio’s volatility as viewed through the team’s proprietary Outlook risk model, in which the team’s near-term risk assumptions are quantified.

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Selected Exposures December 2019 The detail below shows selected market and currency strategy exposures of the Macro Allocation Fund as of quarter-end.

Not intended as investment advice. Allocations are subject to change without notice.

Equity 30.5% Active CurrencyU.S. 5.2% U.S. Dollar (USD) -6.7%Canada 0.0% Canada Dollar (CAD) 0.0%Europe (ex-U.K.) 4.2% Other Americas 13.5%UK 7.7% Euro (EUR) -9.0%Asia Developed 3.2% Switzerland Franc (CHF) -8.0%Emerging 10.2% Great Britain Pound (GBP) 6.0%

Other Europe 10.5%Fixed Income 13.8% Australia Dollar (AUD) and New Zealand Dollar (NZD) -15.0%U.S. Treasury & Credit1,* 14.8% Japan Yen (JPY) 6.0%Non-U.S. Treasury & Credit1,* -1.7% China Yuan (CNY) -2.0%Emerging 0.7% Asia (Excluding JPY and CNY) 2.7%

Other 2.0%Unencumbered Cash 25.1%

U.S. Investment Grade Spread 3.1% Mexican Peso (MXN) 6.5%U.S. High Yield Spread 1.1% Norwegian Krone (NOK) 6.0%

U.S. MBS Spread 0.0% Colombian Peso (COP) 5.0%European Investment Grade Spread 2.2%

European High Yield Spread 0.0%

1Reflected as 10-year exposures2Select currency exposures by largest expected contribution to portfolio risk

*Credit Detail Select Exposures Detail 2

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Additional Details December 2019

This section provides additional commentary relating to the strategy changes within the Macro Allocation Fund during the quarter. 3 October 2019: Increasing U.S. dollar (USD) and Swiss franc (CHF) and decreasing South African rand (ZAR) and Brazilian real (BRL) This strategy change is not based on fundamental valuation but is a de-risking strategy change enacted by reducing exposure to carry currencies and increasing exposure to safe-havens. In recent days, and notwithstanding the central bank supportive influence, forward-looking economic growth indicators from many parts of the world have reported continuing deceleration—and in some cases contraction—in business conditions in developed and (to a lesser extent) emerging economies. While we continue to expect central bank policy to remain highly accommodative and to perhaps become more so, we have some concern that further monetary moves are some time away and that investors may instead pay closer attention to weakening economic growth. We anticipate an environment looking ahead in which emerging currency performance may be more highly correlated with market (specifically equity) returns than normal. This situation is more likely if a dominant influence is global economic growth and if/when conventional wisdom is focused on slowdown or recession, which is a focus generally consistent with where current reported data sits. In short, it is possible that the breadth and diversification of currency exposures may be narrower and smaller than is typically the case, in which case we conclude that the appropriate strategy measure is to reduce risk to better navigate this environment. 10 October 2019: Increasing U.S. dollar (USD) and decreasing Turkish lira (TRY) This change is not driven by fundamental valuation (“Where”) considerations. The TRY continues to be attractive and the USD continues to be unattractive from a fundamental valuation perspective. On 6 October, Turkish President Erdogan announced an expansion of the Turkish presence in Syria. Prior to that, U.S. President Trump announced that the U.S. troops would move out of Northern Syria allowing Turkish troops to take over. This planned incursion by Turkey into Syrian territory creates renewed risks of a deterioration in U.S.-Turkey relations and potentially U.S. sanctions against Turkey. The main lever for the U.S. to influence Turkey’s actions in Syria is to impose economic sanctions via the U.S. legislature. We believe the risk of U.S. economic sanctions on Turkey has increased, even if for now President Trump appears somewhat supportive of Turkey. This change decreases our active currency and total portfolio risk. It especially reduces our downside risk in a currency that has been subject to tail events. 11 October 2019: Decreasing U.S. fixed income and increasing Canada fixed income From fundamental valuation perspective, most sovereign bond markets remain meaningfully unattractive and Canada and the U.S. are no exception. What is more interesting is the change in the relative valuation opportunity over the last six months, during which the spread of U.S. rates to Canadian rates has fallen from 85 bps to 21 bps. In April, from a conventional wisdom standpoint, there was a gradual, but steady differentiation of economic growth and monetary policy between the U.S. and Canada. At the time, we believed that expectations going forward would most likely converge. Since that time, we have seen the expectations of monetary policy and economic growth come more in line between the two economies. This intra-fixed income strategy change has little impact to our portfolio risk profile.

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Additional Details December 2019 15 October 2019: Increasing Canada equity and decreasing France and Brazil equity From a long-term fundamental valuation perspective, all three equity markets remain attractive on an absolute basis, with Brazil and France more attractive than Canada on a relative basis. From a “Why” perspective, both Canada and France remain long-standing “low” influence constituents of the Energy and Populism themes. These themes have generally remained steady headwinds for both markets with no major recent changes. On the other hand, Brazil sits outside of our current array of macro themes and so has tended to benefit from the relative absence of such headwinds. Since Brazil’s election late last year, we have seen several favorable policy changes completed, pursued, or planned such as the pension reform, privatizations, and tax cuts. These policies now appear fully embedded in conventional wisdom, and given Brazil’s relative outperformance (especially within its region), it is no longer as compelling to maintain exposure above or even at signals. 15 October 2019: Increasing EMU equity This strategy change is a continuation of our mechanical option replication strategy. With this change, we are maintaining the convexity we re-introduced in May, in this case via linear replication. As EMU equity markets have recently moved higher, we are buying exposure. (In order to continue the replication, the linear exposure should decrease when markets move lower and increase when markets move higher.) 18 October 2019: Increasing UK equity and decreasing EMU equity This change is justified by fundamental valuation. Since the departure of Theresa May from the post of UK Prime Minister (PM) on 24 May 2019, we have been suppressing long exposure to the UK equity market because we concluded that the negative adverse influence coming from the “Why” step fully counteracted the medium-term positive influence of the “Where” stage. Specifically, we believed that successor PM Boris Johnson (who took office in July 2019) would prove to be significantly more risk tolerant of the UK departing from the European Union (EU) on 31 October 2019 with no withdrawal agreement in place (“no-deal Brexit”). We now think that this likelihood has shifted lower again, reducing the negative risks for the UK equity market. Specifically, PM Johnson reached agreement with EU negotiators of a new draft deal on 17 October that contains changes to transitional arrangements for trade with Ireland that overcame the objections of some (though significantly not all) of the former opponents of Mrs. May’s rejected deal. Importantly, we judge that Mr. Johnson’s act of getting behind a largely similar deal actually reveals a lower tolerance for no-deal Brexit than our prior anticipation. In line with our changed view that the probability of no deal Brexit has shrunk (a comparable change has occurred in market expectations also), we no longer think it is appropriate to offset the attractive valuation opportunity in UK equity. 18 October 2019: Increasing British pound (GBP) and decreasing euro (EUR) Like the previously referenced UK equity strategy change, this change is also justified by fundamental valuation. As with UK equities, we have been suppressing long exposure to GBP. As previously described, the UK circumstances have evolved to reduce the negative risks for the pound. We no longer think it is appropriate to offset the attractive valuation opportunity in GBP.

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Additional Details December 2019 28 October 2019: Increasing emerging equity This strategy change is a continuation of our mechanical option replication strategy. With this change, we are maintaining the convexity we re-introduced in May, in this case via linear replication. As emerging equity markets have recently moved higher, we are buying exposure. (In order to continue the replication, the linear exposure should decrease when markets move lower and increase when markets move higher.) 29 October 2019: Increasing Hong Kong equity exposure From a long-term fundamental value perspective, Hong Kong equity remains attractive on an absolute and relative basis with an estimated V/P of +46%. Most recently, after underperforming both the broader ACWI and another comparable regional financial hub (Singapore), the relative fundamental opportunity has become more attractive. From a “Why” analysis perspective, Hong Kong has been dealing with several headwinds that collectively have conventional wisdom now largely expecting a recession in economic activity. The collective headwinds have included both the long-standing China Growth and Globalism versus Protectionism themes as well as the more specific geopolitical uncertainty around the rule of law. Our recent “Why” concerns over macro themes and geopolitics in Hong Kong have further manifested themselves in homogeneously negative conventional wisdom around economic activity. More often than not, this represents an opportunity to begin to shift from riding defensive exposure to stepping (back) in and (slowly) fading homogeneously negative conventional wisdom. This increase in Hong Kong equity exposure moves strategy from short to flat and a step closer to the fundamental signal. 31 October 2019: Increasing Norwegian krone (NOK) and Czech koruna (CZK) and decreasing Israeli shekel (ILS) and Polish zloty (PLN) This change is justified by fundamental valuation in each case. The NOK has gradually become more undervalued such that there is greater compensation from long exposure, while the CZK, which was modestly overvalued in the past, has now become less so. At the same time, the ILS has become more fundamentally overvalued such that a larger short exposure is more compelling, while the PLN, which has been modestly attractive in the past, is now less attractive. In our view, the valuation opportunity is medium-term in nature and, in this regard, the expected excess real interest rate advantage (carry) is a meaningful part of the compensation for active exposure over such time horizons. In this strategy change, the carry of the currencies being sold (ILS, PLN) is lower than that of the currencies being bought (NOK, CZK), which is part of their relative unattractiveness / attractiveness. 1 November 2019: Decreasing Indonesia equity From a long-term fundamental value perspective, Indonesia remains attractive on an absolute and relative basis to many equity markets with a current V/P estimate of 49%. Following the re-election of President Joko Widodo (“Jokowi”), there have been a couple of prominent laws that received national attention and been met with some of the largest protests Indonesia has seen in decades. More specifically, the revisions to the governance of the Corruption Eradication Commission (“KPK” by Indonesia initials) move the agency to oversight by a committee and remove some powers associated with independence. The KPK has been considered one of the country’s most respected agencies, and so a setback here in the governance prompts consideration of potential institutional deterioration. At the same time, as Jokowi appoints members to a number of committees and his cabinet, one early appointment of note was that of retired Lt. General Prabowo Subianto as Defense Minister. Prabowo was

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Additional Details December 2019 Jokowi’s election challenger. While Jokowi may be seeking stability by including his opposition, the risk here is also a deterioration in the rule of law and democracy given Prabowo’s nationalistic approach. 13 November 2019: Increasing Canada equity and decreasing European financial sector equity From a long-term fundamental value perspective, both equity markets remain fundamentally attractive. From a “Why” perspective, Canada remains a long-standing “low” influence constituent of the Energy theme while European financials are a “high” influence constituent of the Populism theme. These themes have generally remained steady headwinds for both markets with no major recent changes. Now that Canada is past its federal elections, there remains relatively limited near-term specific influences in play. Where there are a few policy discussions around USMCA, tax changes, or regulation, for example, our views remain seemingly not too different from consensus. However, with European financials, the combination of deteriorating economic activity and long-standing central bank accommodation continues to create an unusually pronounced self-fulfilling feedback loop for market expectations. In most instances, these lower rates, especially into deeper negative territory within Europe, sustain the headwind and uncertainty for banks. 15 November 2019: Increasing Canada equity The rationale here mirrors that of the strategy change of 13 November and this change represents another step toward the valuation signal. This strategy change increases total portfolio risk slightly. 18 November 2019: Increasing Chile equity From a long-term fundamental value perspective, Chile is an attractive equity market. Most recently, it has become even more attractive after prices have fallen on both an absolute basis and on a relative basis to most other global equity markets. From a “Why” perspective, we see the recent protests in Chile as less negative for the country than conventional wisdom seems to suggest. The grievances of the protesters have mainly been attributed to income inequality. This would suggest that Chile might turn from a pro-growth to a pro-distribution state. Yet while we anticipate a shift in policy, we do not see the protests as yielding anything like a regime change. For one, sentiments in Chile were already in favor of more distribution. We incorporate this fact in our growth outlook for Chile, which we see as behaving more like a prosperous welfare state than an emerging market riding on “catch-up” growth. The protests are a manifestation of the existing national sentiment rather than a change. Second, the proposed constitutional changes are unlikely to radically change Chile’s business model. As such, we see the prevailing worries about the Chilean market as exaggerated. 18 November 2019: Increasing Chilean peso (CLP) The Chilean peso (CLP) is an attractive currency and has recently become more attractive after weakening relative to the USD and most other currencies. The rationale for this change mirrors that described previously for the equity market change.

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Additional Details December 2019 18 November 2019: Increasing UK equity This change is justified by fundamental valuation. By our estimates, the UK equity market is valued 65% above current price and warrants a larger long portfolio exposure than prior to this strategy change. We noted in our strategy changes on 18 October that the risk of a “no-deal” had fallen dramatically and that we no longer felt compelled to suppress our exposures to UK assets. In addition, the UK will have another general election on 12 December in which opinion polls and traded predictions indicate that the conservative party will gain seats and may achieve a majority. Influential in this regard is that the Brexit Party (formed by Nigel Farage and which ostensibly favors a no-deal Brexit) will not stand candidates in constituencies that the conservatives won at the last election in 2017. An additional adverse market and currency risk presented by the election is that of the Labour Party gaining power—alone or in coalition—since this would usher in policies adverse for UK growth and financial market risk. However, the relative prospects of this outcome have declined since the 2017 election, and in particular since Mr. Johnson has been Prime Minister. This further reduces risk for the UK and we are therefore electing to discontinue suppressing the fundamentally attractive UK equity exposure going forward. 18 November 2019: Increasing British pound (GBP) and decreasing U.S. dollar (USD) and Swiss franc (CHF) This change is justified by fundamental valuation opportunity; the GBP is fundamentally attractive and warrants a long position whereas the CHF and USD are unattractive and warrant larger short positions than strategy had carried prior to the change. The rationale for the GBP increase mirrors that of the previously referenced increase in UK equity. 4 December 2019: Decreasing U.S. equity exposure From a long-term fundamental value perspective, U.S. equity remains slightly unattractive with a V/P estimate of -7%. Recently, President Trump has threatened tariffs on various countries, including Argentina, Brazil, and France. In addition, the U.S. and China are currently engaged in negotiations around a “Stage 1” trade deal. There is a soft deadline of 15 December, which entails the implementation of additional U.S. tariffs on Chinese goods if a deal is not reached. While we do not believe President Trump wants to apply additional tariffs on Chinese goods—as they are mainly consumer-related—we have lowered our probability of a deal being completed before the end of the year. Given the upcoming trade deadlines, we have reduced our exposure. 9 December 2019: Increasing UK equity and decreasing France equity From a long-term fundamental value perspective, both equity markets are attractive, but UK equity is more attractive on a relative basis than France. The polls for the upcoming general election in Great Britain now signal that the conservative party of Boris Johnson will likely win an absolute majority of the seats in parliament. This outcome would further reduce the Brexit uncertainty as it means that the deal negotiated by Boris Johnson is very likely to be approved by the new conservative parliament. On the other hand, France seems to be entering period of greater uncertainty as its proposed digital services tax caught the attention of the Trump administration. The U.S. is contemplating the imposition of 100% tariff on $2.4 B of French goods by 7 Jan 2020. It is now difficult for France’s finance minister to back down on the digital services tax, and this issue therefore creates a significant risk for French equity.

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Additional Details December 2019 13 December 2019: Increasing U.S. equity From a long-term fundamental value perspective, U.S. equity remains slightly unattractive with a V/P estimate of -8%. The most recent update with trade developments is that the U.S. and China have come to a “Phase 1” trade agreement. Part and parcel to the agreement is an understanding that the planned 15 December tariffs will not be implemented and the September tariffs will be cut in half. This strategy change is a reversal of the reduction in U.S. equity made on 4 December. 18 December 2019: Increasing emerging equity This change is not driven by fundamental considerations even though, from a fundamental valuation perspective, most emerging equity markets remain attractive on an absolute and relative basis globally. This strategy change is a continuation of our mechanical option replication strategy. With this change, we are maintaining the convexity we re-introduced in May, in this case via linear replication. As emerging equity markets have recently moved higher, we are buying exposure. (In order to continue the replication, the linear exposure should decrease when markets move lower and increase when markets move higher.)

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Glossary - Terms

Beta: A quantitative measure of the volatility of the portfolio relative to the overall market, represented by a comparable benchmark. A beta greater than 1 is more volatile than the overall market, while a beta less than 1 is less volatile, and could be expected to rise and fall more slowly than the market. Risk (Standard Deviation): A measure of the portfolio’s risk. A higher standard deviation represents a greater dispersion of returns, and thus a greater amount of risk. The annualized standard deviation is calculated using monthly returns. Sharpe Ratio: A risk-adjusted measure calculated using standard deviation and excess return (Portfolio return – Risk Free Rate) to determine reward per unit of risk. The higher the Sharpe ratio, the better the portfolio’s historic risk-adjusted performance.

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